Can an Employee Health Insurance Cooperative Benefit Your Organization

1
Can an Employee Health Insurance Cooperative
Benefit Your Organization?

• Presentation of a Feasibility Study A
  Self-Funded Health Insurance Cooperative
• February 28, 2007

2
Presentation Overview

• Why This Study? The Current Situation Ever
  Increasing Small Group Health Insurance Premiums
  and Pricing Volatility Threaten the
  Sustainability of Health Benefit Programs
• An Alternative Spreading Risk and Maximizing
  Economies of Scale Through a Self-Funded Health
  Insurance Cooperative
• Benefits of a Cooperative
• Estimated Costs
• Potential Obstacles
• Next Steps

3
The Study

• Initiated at the Request of McHenry County
  Municipalities to Research Joint Purchasing
  Programs for Health Insurance Benefits
• Set Out to Answer the Question Would a
  Cooperative Health Plan Provide Better Value and
  Stabilized Pricing for Municipalities Versus
  Their Current Individual Health Plans?
• Conducted by MCCG Ad Hoc Committee on Health
  Insurance from September 2005 to October 2006
• Art Osten, Village of Fox River Grove
• Dorothy Pfeuffer, Village of Lakewood
• Claudett Peters, Village of Johnsburg
• Janelle Crowley, City of Woodstock
• Robert Ivetic, McHenry County
• Roberta Rogers, Village of Lake in the Hills
• Anna Bicanic Moeller, MCCG

4
The Study

• Consultants Assisting with the Study and
  Providing Cost Estimates for a Self-Funded Health
  Insurance Cooperative
• Mike Wojcik, Dennis Bautista and Bonnie Cochrane
  from the Horton Group
• Catherine Loney from GCG Financial
• These Consultants Were Asked to Assist With the
  Process Because of Their Experience with Public
  Health Insurance Cooperatives
• Utilized demographic and health plan information
  from 13 municipalities and McHenry County (1,700
  Employee Lives in Study and Cost Estimates)
• Village of Cary Village of Barrington Hills
• Village of Fox River Grove Village of Johnsburg
• City of Harvard Village of Huntley
• Village of Lakewood Village of Lake in the
  Hills
• City of Marengo City of McHenry
• Village of Prairie Grove Village of Spring Grove
• City of Woodstock

5
The Study

• Final report for McHenry County and the thirteen
  McHenry County municipalities was distributed in
  November 2006, presented to the study group
  January 17, 2007 and presented to approximately
  40 municipalities outside of McHenry County on
  February 26, 2007
• Process opened to municipalities outside of
  McHenry County to increase economies of scale and
  maximize purchasing power

6
The Situation Ever Increasing Small Group
Premiums and Pricing Volatility

• Many organizations face double-digit increases
  for premiums and fluctuating costs from year to
  year making budgeting for health insurance
  difficult
• Costs are increasingly shifted to employees or
  benefits are reduced to cut costs
• According the Kaiser Foundation Healthcare
  premiums for family coverage rose 87 in last 6
  years
• Average premium increase was 7.7 in 2006
• 8.8 for small firms
• 7 for large firms
• 8.7 for fully-insured
• 6.8 for self-funded
• 2006 average cost (PEPY) per employee per year
  8,447
• MCCG Study average cost PEPY 11,288
• 5 year forecast (2012) assuming trend of 11.9
  
• average cost PEPY 19,805
• Kaiser Foundation Milliman Study
  PricewaterhouseCoopers

7
Spreading Risk and Maximizing Economies of Scale
Through a Self-Funded Health Insurance Cooperative

• Cooperatives Have Been Used by Local Governments
  for Years
• Several local government health insurance
  cooperatives have been in existence for over a
  decade in N. Illinois
• Other cooperative arrangements such as IRMA and
  McMRMA have been effective in spreading risk and
  containing costs for members
• Premiums pooled to cover claims up to a specific
  amount example pool covers all claims up to
  100,000 per individual and 1,000,000 aggregate.
  Any claims above these amounts are covered by
  stop loss reinsurance
• Premiums are determined by the participating
  municipalities each year and are based on three
  factors
• Community rate
• Individual organizations risk level
• Types of plans offered to employees
• All participants share in fixed costs such as
  administrative fees, network access fees and stop
  loss insurance

8
Spreading Risk and Maximizing Economies of Scale
Through a Self-Funded Health Insurance Cooperative

• The cooperative is formalized through bylaws,
  which are created and approved by the
  participating municipalities
• The tighter the rules and the group, the better
  the rates (ie a 3-year minimum for
  participation).
• Stability is important for long-term success
• 20 to 25 reserve policy recommended

9
Expected Benefits of a Self-Insured Health
Insurance Cooperative

• Its Better to be Bigger
• Larger groups have a larger population to spread
  risk
• Larger groups have greater leverage in
  negotiating fixed costs such as administration
  and reinsurance expenses
• Larger employers historically have lower
  increases when compared to small group plans
• According to American College of Physicians-
  Small employers pay the highest premiums for
  health care coverage and experience the largest
  annual premium increases and their employees pay
  higher deductibles than large employers

10
Expected Benefits of a Self-Insured Health
Insurance Cooperative

• Municipalities share administrative expenses that
  minimize these costs to individual organizations
• In an individual fully-insured plan, 22 to 32
  of premiums are embedded administrative fees and
  fixed costs- source Congressional Budget Office
  and the Horton Group
• Brokers charge at least 3 of premiums in fees-
  source-Blue-Cross / Blue Shield Group Markets
  Producer Agreement Compensation Schedule- January
  1, 2003
• Large employers pay closer to 12 in fixed costs
  and administrative fees- source American College
  of Physicians- Small Business Pooling
  Arrangements and Association Health Plans 2003

11
Expected Benefits of a Self-Insured Health
Insurance Cooperative

• Smaller communities have access to services and
  plans otherwise not available to them
• Greater reporting
• Bigger discounts
• Incentives to use wellness and preventative care
  programs to keep claims down, thus keeping
  employees healthier
• Greater control, oversight and transparency in
  how premium dollars are allocated. Less guessing
  when budgeting for health insurance costs.

12
Estimated Costs for a Health Insurance
Cooperative for McHenry County and Municipalities

• 2007 Cost estimates provided by the Horton Group
• Cost Estimates Based on 1700 Employee Lives
• Rates determined by the three factors of
  community rate, risk level of the individual
  organization and type of plan (HMO, rich PPO or
  moderate PPO)
• Premium Allocation
• 74 for Expected Claims
• 15 for Reserves
• 11 for Fixed Costs and Administrative Fees

13
Allocation of Premium
14
Estimated Costs for a Health Insurance
Cooperative for McHenry County and Municipalities

• Cost Estimates Show a 7.81 Decrease in Overall
  Premiums from 2005 to 2007
• 16,887,259.21 for 2007 versus 18,317,104.92 in
  2005 (1,429,845.71 less than organizations paid
  as a whole in 2005)
• Savings achieved through maximizing economies of
  scale and shared administrative expenses among a
  large group
• Long-term savings can be achieved by focusing on
  disease prevention and wellness programs

15
Potential Obstacles

• Blue Cross / Blue Shield will not lease access to
  their network to cooperatives with organizations
  that have fewer than 151 employees
• Fear of Change- Employees Resistant to Change
• How to Deal with Union Contracts
• Concept may be viewed as a vehicle to permanent
  decreases or zero increases in premium costs,
  which may or may not be true

16
Next Steps

• March 21, 2007 at 10 am at the
• Village of Fox River Grove
• Develop Strategy for Creating the Cooperative
• Determine Timeline and Steps for Cooperative
• Gather Demographics
• Draft Intergovernmental Agreements
• Create By-Laws
• Select Providers
• Launch Program

17
Thank You